The sticker price is only the starting point. Do you know what you really pay for your vehicle?Your biggest vehicle expense? Your No. 1 cost of ownership? Depreciation, of course.“For the consumer, selecting a vehicle with a lower depreciation rate will reduce their overall cost-of-ownership,”
says Canadian Black Book executive vice-president Larry Shred, whose company has long been a reliable source for used-car values. The CBB is used by dealers as a pricing guide to help them determine trade-in values. But savvy car shoppers can use the CBB’s “Trade-in Value” estimator (canadianblackbook.com
) to calculate depreciation. By doing so, you can determine how much value your car loses over time – and get moving down the road to a complete understanding of what you’re paying for your daily driver. Figures in chart are dollars per kilometre. Source: Canadian Automobile Association and Globe Drive research
Sure, if you keep your vehicle until it qualifies for a $300 Recycle Your Ride government bonus, depreciation is a non-factor. But most Canadians get rid of their vehicle before it turns 15 years old and for them it makes sense to factor depreciation as a real cost. This is where CBB can really help. Using data drawn from a variety of real-time transactions – auto auctions, dealer sales, etc. – this site delivers what many believe are highly accurate current and projected used-vehicle values. Really, it’s a point-and-click operation: select the model and year, choose options and trim packages, plug in the kilometres on the odometer and up pops a low, medium and high value range in seconds. From there it’s a matter of plugging in a few other numbers to nail down a pretty accurate picture of your total ownership costs. As a guide to figuring out total ownership costs, consider what the Canadian Automobile Association (CAA) does annually. The CAA’s Driving Costs 2010 Edition determined that depreciation accounts for $3,628 in annual ownership costs on a 2010 Chevrolet Cobalt LT – or 20 cents/kilometre based on 18,000 km of driving a year. The No. 2 cost is insurance at $1,850 a year or six cents/km. Financing at $666 a year (four cents/km) is the No. 3 cost of ownership for the Cobalt. Using the CAA figures, and research by Globe Drive to include the cost of government (HST) at 4 cents/km, the total cost of ownership for theCobalt LT comes to 47 cents/km or $8,539.94 a year.
That’s a substantial figure, but still dramatically less than the 69 cents/km to drive a new Dodge Grand Caravan minivan. The big cost: 32 cents/km in depreciation or $5,768/year. Total cost of ownership for the Grand Caravan: $13,833.85 per year.
In the middle is the Toyota Prius which in depreciation alone costs 24 cents/km. However, at four cents/km in fuel costs, the Prius comes in at half the figure for the Cobalt and about a third that of the Grand Caravan. Insurance, at 11 cents/km, is the highest of the three. Overall, the Prius costs 54 cents/km or $10,877.69 a year to own.
Some, of course, contend that depreciation and financing are not legitimate, across-the-board ownership costs. And not everyone pays to borrow the money for a new vehicle. But for this article we have included it as a cost. Indeed, the vehicle management company Runzheimer Canada does just that in calculating costs for the CAA. But it is fair to point out that the new-vehicle marketplace is riddled with discounts that do complicate valuations. In addition, new-car values differ dramatically from region to region. So we have broken out ownership costs on a kilometre basis and by category. Those who feel depreciation and financing don’t belong have the option of cutting those figures out of the final ownership cost calculation – restricting the numbers to black-and-white expenses for maintaining a vehicle and paying the very real cost of government. Regardless of how many years you hold on to your car or whether you consider depreciation an important variable cost, car ownership represents a substantial and continuing financial commitment. There is no controversy about that. So in managing your family finances, it is critically important to understand how hard car ownership will hit your wallet. In short, for most people a car is the No. 2 family expense behind housing.
Therefore, for those who watch family finances, it makes perfect sense to look beyond the actual sticker price; it is only one piece of a much larger picture. Everything from fuel to insurance will take up major chunks of your transportation budget. Also, if you are among those who consider depreciation a legitimate ownership cost you may be in for a surprise when comparing two vehicles with the same price. In short, some vehicles depreciate much faster than others. Finally, if you are someone looking to rein in your car costs, the best choice is a smaller and consequently more fuel-efficient vehicle – like the Cobalt or any number of other compact and subcompact cars. Yes, in general terms, fuel costs are relatively minor compared to the price of insurance, financing and depreciation. But smaller cars also come with smaller price tags, thus a less substantial bite in terms of insurance and government expenses. As for other costs, while maintenance and repairs do not consume a huge piece of the overall ownership cost of relatively new vehicles covered under three- or four- year warranties, there are still savings to be found in this area, minor as they might be in the first few years of ownership.
Thrifty buyers might want to look over the maintenance schedule of any potential vehicle purchase and also ask the seller of a new model if maintenance is included in the purchase price, free of charge. With some auto makers, it is. For those weighing a new-vehicle purchase against a used one, do note that repair and maintenance costs get higher as vehicles get older. According to DesRosiers Automotive Consultants, by year five the average annual repair cost of a vehicle is about $800, a figure that by year seven and thereafter rises to between $1,000 and $1,100 annually. The bottom line:
crunching ownership costs should not be just an obsessive-compulsive exercise for penny-pinching drivers. Knowing what you can expect to spend on transportation before you buy a new vehicle is critical for proper budgeting and for guiding purchase decisions. As this table shows, quite a lot of money is involved in owning a vehicle.Figures in chart are dollars per kilometre. Source: Canadian Automobile Association and Globe Drive researchArticle from The Globe and Mail / Glove Drive, Jeremy Cato, Globe and Mail Update